Outliers author Malcolm Gladwell is fighting with Chris Anderson, editor of Wired. Anderson wrote a book called Free, the thesis of which is that economic forces are pushing the commodity value of goods based on intellectual property to nothing and that smart businesses are adopting this as a business model. Gladwell reviewed the book and disagreed:
[H]ow does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. For Anderson, YouTube illustrates the principle that Free removes the necessity of aesthetic judgment. (As he puts it, YouTube proves that “crap is in the eye of the beholder.”) But, in order to make money, YouTube has been obliged to pay for programs that aren’t crap. To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.
On a slightly unrelated (okay, totally unrelated) note, I was watching TV last night and an ad came on for a company that did underfloor insulation – this caught my eye, because I have a new house that needs to be insulated. God how it needs to be insulated.
Advertising space on primetime TV is really expensive so the first thing that occurred to me was that I should NOT use that company, since their margins would be a lot higher than an insulation company that did not have a large advertising budget. Maybe I’m not a standard customer but I suspect that for a large expense like insulation a significant number of people would come to a similar conclusion. So for some businesses an ad campaign might actively be driving customers away.
I’ve always suspected that most mass-advertising is a massive waste of money and I kind of suspect that one of the reasons ad revenues are declining is that companies are finally getting some hard data from their internet ads (ie click-throughs) and concluding that almost all advertising and marketing is essentially a fraud. (Although it obviously works really well with some demographics – like teenagers – and certain products – like movies.)
Perhaps one day our set-top boxes will feed us different ads than our neighbours, based on our differing household composition/income/stated tastes.
Ever noticed the same ad three times in the same ad break? I have…although I fail to recall now what these was about…
Of course, when the tv advertsing market collapses, our already-shit tv will really go downhill. We aready willingly partake of Pay per view (the cinema, DVD hire (and purchase) TiVo). But when you have to pay to watch episodes of a police procedural, I suspect the film/tv industry will shrink somewhat.
Comment by Clunking Fist — July 8, 2009 @ 2:14 pm
That’s a rather naive view of marketing isn’t it?
Modern advertising has very little to do with actually selling you an item, but is instead primarily directed at raising awareness of the brand and/or product. That way, when you do get around in your own sweet time to making a purchase, you’ve already got a psychological association with the product.
On a micro level, an alternative hypothesis is that Expol (your underfloor insulation) is able to afford the advertising space because it produces higher volumes – which tend to come at lower marginal cost.
Comment by Phil (not Goff) — July 8, 2009 @ 5:50 pm